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Zuzana Ceralová Petrofová: Petrof may once more strike a chord in America

24. 10. 2016 | Source: BusinessInfo.cz

Ten years ago, Europe’s largest piano maker, Hradec Králové-based Petrof, looked like it might not survive a 60-percent collapse in US-based sales. But since then the business has caught a second wind, thanks, in part, to new markets such as China.

You actively backed the Mayors and Independents and Eastern Czechs coalition in October's regional elections. Why?If something is going change, then it has to start in the regions. The regions have significant powers to improve our national environment. Whether that pertains to securing quality social and health care, or to fixing broken streets, or to ensuring that our secondary schools have sufficient teachers for all subjects. All those are issues which are of daily relevance to us.

Do you have any political ambitions yourself?As the Petrof family, we have never been directly involved in politics, nor do I have any such ambitions. But we are happy to support smart, right-of-centre, and morally competent figures.

Shortly after arriving at Petrof in 2004, the company found itself facing major problems as a result of a fall in US customers. Was that a baptism of fire?Certainly. I am a pharmacologist by background, and so I lacked experience. But I went into battle full steam ahead, and it turned out well.

What was the likelihood of failure in restoring Petrof's fortunes?Quite large. Back then, at the point when Petrof lost 60 percent of revenues as a result of the US market, major players in crisis management were telling me that I had no chance. They said that in reality the company was no longer ours but belonged to the banks. To which I responded that hope is the last thing to die, and then I set about, step by step, negotiating with the banks. We persuaded them, and ultimately they turned out to be partners. They provided much useful guidance, and also some advice which we fortunately did not heed.

What advice from the banks did you not follow?They advised us to cease making smaller upright pianos and only focus on grand pianos, because they had the best profit margin. And it is good that we did not do that. Right now, uprightpianos represent our strongest sales segment. But as a rule bankers can be great visionaries. They understand both macro and microeconomics, and make great partners in that regard.

Did you then turn your back on the US market?Sadly, our partner there, who had stabbed us in the back, and who had caused me to have to cut the size of our firm in half - and then half again - was presenting us as "cheap goods from Eastern Europe". And so we had a bad reputation in America. They liked us, and our sales were good. But we were selling goods at a price which we were no longer prepared to accept.

And after the aforementioned bad experience, we stated that we would only sell to the US if the Americans paid upfront. And we have stuck to that. Our sales there aren't huge. But at the same time, when musical instruments leave here for the US, they have always been prepaid. But one key development is that the state-run CzechTrade agency has named the US as a supported country for next year.

What does that mean for you?We are in talks about once again featuring our products at a large American musical instruments trade fair. The [trade and industry] ministry would help finance a display space. And in relation to this we are also debating whether the time has not arrived to once again focus our attentions on the US market. We will see what the mood is like at the trade fair.

Petrof almost went under as a result of the impact of the financial crisis in the US. Do you not now face the same risks associated with a strong reliance on exports to China and Russia?We are trying to avoid such a risk. [Shoe firm founder Tomáš] Baťa once said that a company should not be dependent on one customer for more than 15 percent of its revenues. And because China now represents up to 35 percent of revenues, we agreed that we need to diversify to negate such a risk. So instead of one partner there we now deal with four paying partners in China. Furthermore, these cover varying territories. Asides from producing certain brands for the Chinese market outside of our own Petrof, we also undertake licensing efforts directly in China, and so have money flowing in from various sources.

Do you face problems with plagiarised goods?We have a dedicated system which we use to determine if an instrument is genuine or a fake. Similarly to banknotes we have added a host of special detectable elements which we use to detect our products. Additionally, we know most dealers in China, and so if some instrument comes on the market posing as a Petrof, which doesn't seem genuine, then we are immediately alerted to that.

What about the situation in Russia?Right now, Russia represents 12 percent of revenues, but that figure used to be higher. Even more than 20 percent. But the political and economic situation remain not good there. People are frugal because of the weak rouble, which has been strongly reflected in private sales of large musical instruments and in school tenders.

How do you manage to get hold of quality wood?Sadly the amount of available resonant wood in the Czech Republic is falling, because no-one is seeking to ensure that new trees of this kind are planted. Such trees only grow at 800 metres above sea level. Additionally, they have to be 80 or more years old. And it has to be a tree growing deep inside a forest, in order to be spared the influence of winds. Traditionally we used to source wood from Vysočina and Šumava, but now there are ever fewer of these resources available. Meaning we have to look elsewhere. In the Italian Dolomites or on the other side of Šumava.

Just like with banknotes we have added a host of special detectable elements which we use to spot counterfeits. Our Chinese dealers alert us if an instrument appears to be a fake.

Does that impact the sound of the instruments?Yes. We undertook blinds tests, during which we did not know from where a resonant wood was sourced. We let musicians try them out and evidently a difference was noticed.

This year you added a parent company above Petrof, namely Petrof Pianos Group. Did that mean some sort of internal rearranging of the business within the family?When I became managing director of the firm in 2004, I needed to have a majority share in my hands so as to be able to negotiate effectively on behalf of the company. I came to an agreement with most of my relatives and gained a 70 percent stake.

The agreement was such that once the company was stabilised and consolidated, we would settle among ourselves and I would return a 50 percent stake back to them. Now that time has arrived. So together with those that went along with the plan, I created Petrof Pianos Group. I have a 51 percent stake, enabling me to run the firm. This was a way to denote those of us with a common direction for the firm, and who shared in the vision which I am translating.

You took over the firm 12 years ago from your father. Does he still have a say in how you run things?He serves as my advisor. Because everything has already happened once before, then whenever I am at a loss as to what to do, I go and see him and he proverbially pours out a solution from his sleeves. He is also of great help in PR activities. Because he likes to attend all kinds of concerts, and to talk with pianists about whether all was in order, if they are satisfied with our customer service and so on. He attends one or two concerts a week in this way, which is very helpful to me. But as for the actual running of the company, he leaves that to me.

Have investors taken an interest in the company?Many competitors are unable to come to terms with the complex conditions in the market and are thus selling up to Asian firms. The Koreans and Chinese have also made advances in regard to our firm. I heard them out so as to know the kind of interest that exists in our company. But each time we ended up parting ways.

Zuzana Ceralová Petrofová (48)Fifth generation of the pianomaking Petrof family. Studied at the Pharmacological Faculty of Charles University in Hradec Králové. Joined her namesake company in 2000; took over the management four years later. Winner of the 2014 Manager of the Year Award.

Originally published in E15 weekly, economic and business newsmagazine. Author: Daniel Novák. Photo: Michael Tomeš.